By Dipo Olowookere
Trouble may be lurking around for Nigeria if the amount left in the external reserves of the largest economy in Africa is anything to take seriously.
The foreign earnings of the country have been threatened this year because of a sharp decline in the price of crude oil as well as COVID-19 pandemic.
Nigeria depends mainly on the sale of crude oil to get forex and because of the volatile state of the global market, things have not been palatable for the country.
On Tuesday, Business Post checked on the foreign reserves of the nation and it was observed that the amount has depleted below $35 billion.
As at Friday, December 11, 2020, the amount left in the reserves stood at $34.926 billion from the previous day’s $34.970 billion, when the reserves declined below the $35 billion region after many months there.
On Wednesday, December 9, 2020, the external reserves closed at $35.013 billion as against Tuesday’s value of $35.048 billion.
One of the major reasons for the reduction in the foreign reserves of Nigeria is its use for defending of the Naira by the Central Bank of Nigeria (CBN).
In order to keep the value of the local currency against the foreign currencies stable, the CBN takes from the reserves to sell to authorised FX dealers.
This is to ensure FX liquidity to enable customers to get Dollars to complete their offshore transactions and make the value of the Naira stronger at the market.
With earnings from the sale of crude oil declining, the reserves will continue to go down.
In order to boost it, the country must ensure that it earns more FX by exporting products and reduce its reliance on the importation of goods into Nigeria. This will make the reserves to grow and will reflect in the value of the local currency, which will get stronger and better for the country.
Adedapo Adesanya